August 13, 2017

A report from Bloomberg on New York. “For Manhattan landlords, Christmas usually comes in July, a month when demand for apartments surges and rents go up. Not this year. Leasing costs in the borough dropped 1.9 percent from July 2016, the first decline for the month in at least five years, according to a report by appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate. As the market contends with an unrelenting wave of new supply, owners are using the summer as way to get ahead of the competition. They’re offering rent discounts and deal sweeteners in a rush to fill their units before the slower, cooler months set in. ‘The last thing anyone wants to do, especially now, is rack up vacancies,’ said Gary Malin, president of brokerage Citi Habitats, which released its own report on the rental market. ‘If you rack them up now, going into a slower time, its going to be even harder to achieve your price.’”

From Bisnow on California. “San Francisco, Oakland and San Jose are ideal markets to sell multifamily assets, according to the latest findings from Ten-X. These major Bay Area markets have received additional supply, which has pushed up vacancies. Rents also may have peaked, leaving multifamily assets vulnerable for diminished returns. In San Francisco, multifamily completions have outpaced absorption since 2014. Vacancies have risen and rent growth started to weaken last year. Employment growth has slowed from upper 4% in early 2016 to about 2% in 2017 related to a slowdown in the city’s critical information sector. Ten-X expects the region will face net operating income declines of about 4.7% through 2020.”

“San Jose can expect similar prospects. New supply hitting the city is pushing vacancies up to the 4% range. Overall job growth has cooled slightly despite a robust information sector, and slow population growth is limiting potential expansion. Rents are expected to contract in 2018 and vacancies are expected to climb above 7%. Ten-X expects annual net operating income to decline 3% from 2017 to 2020.”

From LA Weekly on California. “Construction cranes dot the skylines of Hollywood and downtown. And statewide, more new housing units were built last year than in any recent year. But that progress may be about to stall in Los Angeles. A report by the Building Industry Association of Southern California, or BIA, says that applications for new housing units in Los Angeles have fallen dramatically this year. ‘The San Fernando Valley has projects that are no longer moving forward,’ says Stuart Waldman, president of the Valley Industry Commerce Association. ‘They just couldn’t pencil out anymore.’”

The Denver Post on Colorado. “Denver is poised to have a glut of luxury apartments and Denver hopes to buy down rents for low income residents. Denver Mayor Michael Hancock announced Tuesday that the city is close to scoring a major corporate partner to help launch a pilot program to buy down rents for as many as 400 apartments in Denver. Residents making between 40 percent and 80 percent of area median income would be eligible to apply for the vouchers that could pay down their rents. The goal would be for the rent to not exceed 35 percent of the individual’s income.”

“Here’s the brilliant part of the plan, however. Those individuals would be putting 5 percent of their rent into an escrow account, so at the end of two years, in theory, the voucher recipients could have saved the beginnings of a down payment for a home.”

“Former Denver Post reporter Emilie Rusch reported that Denver is likely to have a glut of luxury apartments in coming years. Rusch found the good news was that 13,370 apartment units are online to open in Denver by the end of the year, but the really bad news is the majority of those will be at the top end of the rental market in prices. As those units sit empty, prices should come down.”

“It’d be a shame if this voucher program rewarded the bad behavior of developers building for customers who don’t exist in a fantasy world where on-demand yoga, tanning beds and dog groomers aren’t luxuries beyond the financial means of most.”

From KRIS TV in Texas. “It was supposed to be the center piece for revitalization of downtown Corpus Christi, but four years after construction began, The Cosmopolitan still sits empty. The luxury apartment complex is located in the heart of downtown. The ownership group most recently said tenants could begin moving in on April 1st of this year. However, that was just one of multiple promised grand opening dates that never happened.”

“‘We offer a host of property amenities, such as a resort style pool, with a resident operated swim up bar and cabanas,’ a voice message for The Cosmopolitan states. A website features colorful artist renderings that depict a selection of floor plans, and a street level state-of-the-art fitness center and retail shops. Marketing encourages Corpus Christi residents to ‘Live, Work, Play’ and ‘Live downtown for real.’”

“‘It is a huge letdown,’ said former downtown business owner Matt Scott. The Corpus Christi native lobbied for The Cosmopolitan back in 2012. ‘I remember going to City Council meetings in support of it,’ he said. ‘It just completely backfired.’”

“Construction also stalled in March of last year, when the rising cost of construction and other factors left The Cosmopolitan short on cash to pay its contractors. Eight liens on the property were filed at the Nueces County Courthouse by unpaid contractors. An email currently being sent out to interested renters once again promises an opening date by the end of the month. ‘You are getting in touch with us at a great time, as we anticipate having units available for tours in the upcoming weeks, and currently have move in reservation dates Late August and September,’ the email reads.”

From the Los Angeles Times. “Los Angeles and New York City top the list of U.S. cities with the most poor people laboring under heavy rent burdens, living in substandard housing, or both, according to a U.S. Department of Housing and Urban Affairs study. More than half of Los Angeles’ 1 million very poor households, or 567,000, spent more than half their income on rent or resorted to undesirable housing in 2015, the study said.”

“In New York City, 44% of the very poor also struggled to afford housing, but because there were more of them — 1.8 million — the number falling into what the study called the ‘worst-case housing needs’ category was higher, 815,000. More than half of very low-income people in Miami, Phoenix and Riverside also struggled to pay the rent, the study said.”

“Rising rents have been linked to Los Angeles’ explosive homelessness problem, which grew 23% last year, to 58,000 people countywide, officials reported based on a January street and shelter count. A report by Zillow found that 2,000 more people would be pushed into homelessness by a 5% rent hike — just over the 4.5% jump the company forecasts for L.A. next year. The company said rent increases are closely tied to burgeoning homelessness in cities including Los Angeles, Seattle and New York City, where there is little low-income housing for those priced out of rapidly gentrifying neighborhoods to go to.”

“Nationwide, HUD reported that the number of households with worst-case housing needs ballooned 66% since 2001, with record increases between 2007 and 2011.”

If this had happened in one or two cities, even at the same time, one could maybe attribute it to miscalculation or regulations. But practically every city and most towns all across the US at the same time? CRE doubled in NYC from 2014 to 2016. Now there’s a glut of just about every type of property except what people need.

“There is no greater power than the destructive nature of borrowed money.”

This is true if one chooses to position himself on the wrong end of the borrowing. But if one chooses to position himself on the correct end of the borrowing then the nature of the borrowing is not at all destructive but instead it turns out to be quite liberating.

My boss called me into his office. I could tell he had something on his mind. He said, “Give me a definition of interest.” Of course, I reached back in my training and gave him a definition I had learned from a textbook. He said, “No, no, no, that’s not the one I want. You listen and remember this one: Thems that understands it, earns it; and thems that don’t, pays it.”

“Here’s the brilliant part of the plan, however. Those individuals would be putting 5 percent of their rent into an escrow account, so at the end of two years, in theory, the voucher recipients could have saved the beginnings of a down payment for a home.”

Guaranteed that the landlord and/or ‘corporate partner’ in this scheme stand to financially benefit. The terms probably state that you have to use a particular RE broker firm, a particular lender…

This kind of deal is not new. It was offered to me in the Midwest about 10 years ago. And yes, you DID need to use their preferred financial firm — usually just the developer itself.*

Of course, at the end of two years, you got the principle of the escrow back, but who do you think collected the interest on that cash over 24 months? YUP. And of course, since the Denver renters are getting a government voucher, it’s VERY easy to charge 5% more in rent overall while effectively collecting 5% less rent from the renter. So the developer charges the same rent he intended, but gets to harvest interest from probably millions in rent payments every month.

I know you guys like to say that government ruins everything, but what we need is for Yellen et al to start hanging real strings on all this free money. “Want taxpayer money? Build apartments at less than X rent per month. Not enough profit for you? OK, we’ll build it ourselves and make a little bit of profit.” Yes, that’s evil socialism, but at least the people have housing. And it prevents private sector shenanigans like this.

——————
*This complex also charged another $35/month to join a mandatory “club” where renters could attend little events like wine tastings and pool parties and so forth. Lovely amenities sure, but you had to rent your washer/dryer and sewer wasn’t included in the rent. Their crap added up to ~$90/month extra, which was 10% more than the plainer apartment complex nearby. More than cancels out that 5% boondoggle. I chose the plainer complex.

Just an addition to my earlier comment. Now I remember more about that 5% rent/down payment offer. Not only did you have to use the builder/developer’s escrow company, you had to use the money to buy a new home from the same builder.

No no no Mr. Banker don’t do that here. Wait until you’re alone in your room…

It’d be a shame if this voucher program rewarded the bad behavior of developers

What about rewarding the bad behavior of those lucky duckies who only make 40% of the median income? Why should they be able to live in luxury digs, while those Millenials who worked hard to the better jobs have to pay full freight, and deal with crap for neighbors?

Bigger and bigger city government with more and more regulations and higher and higher taxes can SOLVE this! Plus more illegals…i mean undocumented moocher invaders.

*********

“Los Angeles and New York City top the list of U.S. cities with the most poor people laboring under heavy rent burdens, living in substandard housing, or both, according to a U.S. Department of Housing and Urban Affairs study. More than half of Los Angeles’ 1 million very poor households, or 567,000, spent more than half their income on rent or resorted to undesirable housing in 2015, the study said.”

Los Angeles and New York City top the list of U.S. cities with the most poor people laboring under heavy rent burdens, living in substandard housing, or both, according to a U.S. Department of Housing and Urban Affairs study

Those are the two most populous cities in the country, so this is not surprising.

I dunno, 2banana, it seems the bigger and bigger corporations with few regulations aren’t solving much either.

The real problem is that we are in the sweet spot — for Mr. Banker — between too much government and not enough. Either stop the free money entirely and force everyone to return to a solid footing of goods and services, or take over the building entirely, soviet-style. This middle ground is just putting money into the wrong pockets.

Not a big deal. Just streaming yoga videos. It’s not any different from having a bunch of DVDs. Hell, it’s not any different from the old yoga flashcards where you mixed and matched your own routine. It’s already all on youtube anyway.

Since the nineties the rate of production moving to China and other low-cost countries has been nothing short of dramatic. I’m sure there a dependency factor in there somewhere. The U.S. used to have the upper hand in agriculture, and it was used as political leverage until that advantage was lost.

I wonder why the ghost cities have not lead to a bigger economic downturn than seemingly exists in China? A empty city for 1,000,000 people, costing, say $30,000/person would be $30 billion of cost with zero return. I guess with 1.3 billion people, that is only $23/person……

“I wonder why the ghost cities have not lead to a bigger economic downturn than seemingly exists in China?”

“Seemingly exists” being the operative phrase here. Ben posted a video a while back of a couple of guys touring China, ghost cities and all. And while it couldn’t be seen in the video, one guy commented on the stench of pollution that pervaded the air, with the haze off in the distance.

China is very opaque in its practices. No one really knows what goes on there.

Whatever happened to the global savings glut?
Financial Times-10 hours ago
The money washed up in the US housing market, driving up investment and prices. … Since the crisis, low oil prices have eliminated a big part of the glut.

Public Lands
The Bureau of Land Management offers seven developed campgrounds in northern Arizona. The campgrounds are located in the northwest part of the state along the Colorado River and surrounding mountain ranges. The campgrounds have basic amenities such as vault toilets, fire rings and picnic tables. Dispersed camping is also allowed on BLM-managed public lands in the northwest part of the state. You may camp up to 14 days at any location before having to move to another campsite at least 25 miles away. After another 14 days, you can return to your original site if you desire, or find another spot.